Watson's Urwin sees lower equity allocations
GLOBAL - Roger Urwin, global head of investment consulting at Watson Wyatt, says several factors will mean pension schemes will adopt a lower equity allocation in the future.
"Going forward, while it is likely that equities will play an important role in pension fund investment, it is unlikely that they will account for such a large portion of total assets again," he said.
"Ageing populations, new accounting standards, increasing diversification and the need to enhance returns in a lower return environment all point to a lower equity allocation in the future."
Watson has found that global total of institutional pension fund assets has risen just over seven percent to $15.3tn - but that liabilities1 increased by approximately 10%.
"Although the trend of shrinking assets has halted, with liabilities again outperforming assets, the global pension fund balance sheet has been weakened a little further," Urwin stated.
The firm said average equity allocations are now around 51% of portfolio assets compared with 49% at the end of 2002.
Urwin added: "Most pension funds recognise that there is still a global pensions crisis but over the last couple of years many have started to address the situation.
Investment strategies are becoming increasingly more sophisticated and long-term focused with attention turning towards alternative assets. In particular, hedge funds, private equity, commodities and derivative instruments are gaining more exposure in institutional portfolios."